Is artificial intelligence a threat for financial advisers?
With artificial intelligence getting smarter all the time, what will it mean for financial advisers? In the first of a series of articles, Ian McKenna, Managing Director of FTRC, shares his view.
Hardly a week goes by without some reference in the news to artificial intelligence (AI) and what it will do for jobs, life and even the future of humanity. But how should the financial advice industry see artificial intelligence? Is it something to be welcomed or feared?
Typically, AI is positioned as something that will change the world in the near future. However, the reality is that a lot of it is already here — and it’s changing things around us every day without most of us realising it.
AI in other industries
What few people recognise is that much of what people would perceive as the future, is already here. Take for example Minority Report, starring Tom Cruise. The movie was set in 2054, where technology predicts who will commit crimes before they happen. It sounds hugely futuristic, but the reality is much of this technology already exists. In the last year multiple people have been convicted of serious crimes in the United States, including the notorious Golden Gate killer, based on the identification of their DNA from samples supplied to genetic testing companies by distant relatives. There are now literally dozens of similar cases finding their way through the American courts.
Since 2016 the New York police department has been using a system called Patternizr targeting criminals by looking at data on known crimes and uses it to identify other crimes that have taken place that wouldn’t normally have been associated, hence providing further evidence that can be used to identify the guilty person. Traditionally such analysis would have been conducted manually and relied on human memory.
When it started using Patternizr, the NYPD used 10 years of previously identified patterns to train the system — and then tested how well it could recreate old crime patterns using this data. The results showed the system was able to accurately recreate patterns in one in three cases, and parts of patterns in four out of five. This builds on the work achieved by the famous CompStat system introduced in the 1990s which transformed New York from one of the most dangerous to one of the safest cities in the world through early forms of artificial intelligence using pattern recognition.
In the UK controversially, the police have recently been using facial recognition technologies to monitor people in crowded locations and use the film to identify where known criminals are present. Notoriously in China the highly controversial Social Credit system is using artificial intelligence and facial recognition technology to measure individual’s adherence to the government required social norms. Their score has a direct impact on their lives, rewarding good behaviour but penalising that which is seen as poor.
Most people believe that the tricorder is an item from science fiction, originating in the 1960s Star Trek series which was set in the 23rd century. In 2017 a family of scientists and clinicians created a more capable device than the one envisaged in the first Star Trek series when winning the Qualcomm Tricorder X prize. This is made all the more remarkable by the fact that the family literally built the device around their kitchen table!
Actually, much of the way we live and work is already heavily influenced by artificial intelligence. Netflix, for example, uses extensive machine learning to understand preferences and offer us the content it believes we are most likely to prefer based on our previous viewing habits.
AI in the world of advice
Given its increasing prevalence in other industries, you probably won’t be surprised to learn that AI is also making significant inroads into our own…
In the US iPipeline have built their own insurance AI system, called ‘InsureSight’. It can identify, with over 90% accuracy, the type of life insurance policy a consumer will want to take out (eg contract type, sum assured, term, etc) by measuring nine personal attributes.
Similarly, US-based firm, Syntoniq, has developed a form of behavioural profiling based on consumer responses to questions that can identify the type of investments that the consumer is most likely to be comfortable with — as well as those they’ll be reluctant to use. This goes much further than the conventional approach to risk profiling — applying both behavioural finance and big data to better understand customers.
Applying technology like this will enable advisers to be far more accurate in identifying the type of contracts a client will be happy with before they meet. Not only will this improve the advice process, but it will provide valuable scientific evidence which can be used to justify recommendations in the event of subsequent complaints by ambulance-chasing claims management firms. Invariably when confronted with strong independent evidence these organisations go away and look for a softer target.
Similarly, a number of firms are now using facial emotion recognition software to better understand how clients’ really feel about financial products and their attitude to risk. Cetera Financial Group in the US is already deploying such technology, based around the facial recognition system built by Swiss-based nviso, which helps consumers set their priorities more easily and be more confident about their financial decisions. In the UK, Advantra Wealth recently demonstrated their Amplify system using emotion recognition risk profiling tool linked to the Ortec Scenario engine.
A more robust regulatory answer
While some advisers may feel threatened by something they see as a traditional part of their role being overtaken by technology from a practical perspective, machines applying science can deliver a more robust answer from a regulatory perspective. Financial Ombudsmen Service adjudicators may feel they can argue with the views of an individual adviser over a client’s attitude to risk. It will be far more difficult for them to justify overruling proven science.
I expect the first wholesale use of artificial intelligence in UK adviser businesses to be based around compliance.
If you have a dataset of half-a-million-plus pieces of successful advice using AI, it should be relatively easy to identify the attributes that would be expected to drive outcomes and measure the advice against the expected conclusions. From here it should become relatively easy to apply an AI compliance validation on all cases using a suitability generation tool which will measure the advice against expected norms as the suitability report is generated.
This will not be a “the machine says no” scenario, rather a “the machine says this case needs to be looked at in more detail” one. This could hugely reduce the burden on compliance departments enabling them to do 100% AI file checks and apply human resources to looking in more detail at complex cases where there may be good reasons why the advice is outside the norms.
Finally, it’s only fair to recognise that Aviva are actually one of the world’s leading insurers when it come to applying artificial intelligence into underwriting. Not only for personal lines products where their “ask it never” technology is transforming the customer experience, but also in life insurance underwriting.
The company has been able to reduce the time taken where an underwriting decision is needed from typically a week to virtually instant decisions through the use of AI. During this year the same technology will be applied into claims payments processes, enabling them to significantly reduce the amount of time it takes to agree a claim and make the payment. An excellent example of artificial intelligence helping us to demonstrate the value of our industry to society.
Helping you work faster and smarter
The above are all examples of things that will enable financial advisers to work smarter and faster — without having to work harder.
Indeed, many of them are previously time-consuming processes that can now be carried out almost instantaneously — giving the adviser more time to spend on the task they like doing most: advising clients (as well as having more free time for their private lives).
The reality is that the future is here. It’s looking pretty good already, and it’s only going to get better for those who embrace rather than resist it. One thing that is crucial to be successful in the future, do not fight the machines: work out how to use them to make your life easier. This applies equally in both business and people’s personal lives.
It may be tempting to dismiss these things and say they are not for you but to do so is like using a spinning Jenny when you could be using a loom. The changes brought about by the fourth Industrial Revolution will be every bit as transformative as those from the first; the good news is the vast majority of the benefits will be overwhelmingly positive.
In the run up to RDR, many advisers felt it would have a negative impact on their business. Yet seven years later I see very few advisers who aren’t better off. In the same way that regulation and transparency has made the industry a better place, artificial intelligence will do the same.
Deciding whether to use AI in your business is a question of whether you want to survive. How quickly you embrace it is a question of how quickly you want to thrive.
Do you agree with Ian? Will artificial intelligence have a big impact on the advice industry? And are you planning to embrace it in your own firm? Share your views below.
